MUNICH/FRANKFURT (Reuters) – Within weeks of taking the helm at Siemens in 2007, Peter Loescher splashed out $7 billion for U.S. diagnostics firm Dade Behring. It was the first of several acquisitions that went bad and ultimately cost the Austrian his job.

Joe Kaeser replaced Loescher less than a year ago, promising a more disciplined approach. And in his first major test as CEO – the politically-charged battle for France’s Alstom – he has been true to his word.

On Friday, the French government announced it had chosen U.S. conglomerate General Electric over Siemens and its bidding partner Mitsubishi Heavy Industries in the contest to acquire the energy assets of Alstom.

But rather than looking like the loser, Kaeser – who celebrates his 57th birthday on Monday – emerged with his reputation for prudence and his dealmaker image burnished.

Siemens may have missed out on Alstom, giving its biggest global competitor GE a stronger foothold in its European backyard. However the message to Siemens shareholders is clear: the Loescher era is over and under his successor the company will not do deals at any price.

“Kaeser is looking pretty good now,” said Ingo-Martin Schachel, an analyst at Commerzbank. “He was not just disciplined but also clever in that he made it a little more difficult for GE to buy the Alstom assets.”

Hans-Joachim Heimbuerger, an analyst at Kepler Cheuvreux, said: “Siemens has lost the battle for Alstom. Our grief is limited.”

INTERNAL CONCERN

In early May, top executives at the German company were not so sure their Bavarian CEO would be able to say no to Alstom.

As Kaeser put the finishing touches to a big restructuring of the 167-year-old company, some within it voiced concern that Siemens would waste time and money integrating its weakened French rival, according to officials at headquarters in Munich.

Unions grumbled, concerned Kaeser would end up giving job guarantees to French Alstom workers that would ultimately hurt German employees. Other staff wondered whether Siemens would give away control of its train business to France – an asset-swap that could bolster the German firm’s energy activities, but also saddle it with antitrust headaches given the dominance of a combined firm in turbines, transmission and hydro power.

Finally, on May 7, at a presentation to reporters and analysts in the German capital, Kaeser unveiled “Vision 2020”, the restructuring plan he had been honing for nine months. It was meant to signal a break from the go-for-growth Loescher era and usher Siemens into a new age of profitability.

But no-one wanted to talk about that plan any more. The previous week Siemens had announced it would make an offer for Alstom and all the talk was of how, encouraged by the French government, Kaeser was trying to counter a potential deal with General Electric. In Berlin, the questions for him were not about overhauling Siemens but rather how he intended to overhaul Alstom.

He insisted he would not be forced into a deal – determined, Siemens officials say, not to overpay for Alstom and overstretch his management team. For regardless of Alstom, Siemens’ energy business needed close attention. Profit had tumbled in the second quarter and longtime head Michael Suess had been pushed out, replaced by Lisa Davis of Royal Dutch Shell, who would oversee the energy activities from the United States.

MONTBLANC PLAN

It was around this time that Kaeser hatched “Montblanc”, codename for the joint bid with Mitsubishi – a company Siemens had got to know in recent months during talks on the sale of a majority stake in the German firm’s Austrian metals business.

“The negotiation teams already knew each other and could get right back to negotiating,” one person close to the matter said.

The beauty of bringing Mitsubishi in: Siemens could limit its bid to the one Alstom asset it really wanted – gas turbines – and avoid the antitrust hurdles it would have faced had it bought the French group’s full energy business as GE planned.

Siemens workers and shareholders breathed a sigh of relief. Even if the deal came off, the risks to the German firm would be limited.

When Siemens and Mitsubishi finally unveiled their joint offer on June 16, Kaeser sold the highly complex deal as an “alliance” that would keep Alstom largely intact – a key demand of the French government.

Thrown on the defensive, GE was forced to retool its own 12.4 billion euro ($16.9 billion) bid to give the French greater say. On Friday, GE was anointed the winner but received a list of further French demands and news that the government would purchase a 20 percent stake in Alstom.

In a letter to staff on Sunday, a copy of which was obtained by Reuters, Kaeser said it was unfortunate that the Siemens-Mitsubishi offer had not won the day, but also made clear that there were benefits to having lost out.

“Implementing the (GE-Alstom) deal will keep two of our competitors heavily occupied for years,” he said in the letter.

“And with the French government as a major shareholder, it will be difficult (for GE) to push through American-style productivity and restructuring measures. This represents a huge opportunity for us.”

KAESER CHALLENGE

Despite the positive spin, some analysts believe Siemens has lost an opportunity in losing Alstom.

The French group’s gas turbine activities, with their large installed base and service contracts, would have given Siemens the high growth, high margin business Kaeser has coveted.

And now that GE has swooped on Alstom, Siemens can no longer boast about being the only big global player to offer both grid and power generation equipment.

“Alstom was a relatively weak competitor financially that could hardly make its customers attractive offers,” said Christoph Niesel, a fund manager at Union Investment. “Now it can use GE’s balance sheet to make offers that are just as attractive as those of Siemens.”

On top of that problem, Kaeser may find the unions less friendly after he tried to offload the firm’s rail business to Alstom as part of his offer. The Siemens veteran is well aware that worker unrest contributed to Loescher’s downfall.

More broadly, Kaeser still faces the challenge of closing a profitability gap with rivals like GE and Switzerland’s ABB. To help achieve that goal, he has promised to deliver 1 billion euros in annual productivity gains through his corporate streamlining.

With his shrewd maneuvering over Alstom, Kaeser has reassured investors that he will not rush into deals like Loescher did with Dade Behring, a company whose value Siemens was forced to write down by 1.2 billion euros three years later.

But his biggest challenge – transforming Siemens and its complex mix of businesses – remains.

“Mr. Kaeser has promised shareholders a lot and hopes are high that things will improve,” said Marcus Poppe, a fund manager at DWS. “But until now we haven’t seen an improvement in the numbers.”